In a development thought to be unprecedented, global financial institutions seeking
safe havens for their cash preferred to accept a negative rate of interest from the German government rather than place their money elsewhere.

The shock bond auction came as the leaders of France and Germany signalled determination to
get a new European Union 'fiscal compact' tied up quickly.

French president Nicolas Sarkozy said after a meeting with German
chancellor Angela Merkel in Berlin that they want negotiations to
'finish in the days ahead' in time for a treaty to be signed on March
1.

And Mrs Merkel added: 'There is a good chance that we will have signed
off debt brakes and everything that that entails already in January, and
by March at the latest.'

Crunch talks: French President Nicolas Sarkozy and German Chancellor Angela Merkel head to a press conference after a meeting in Berlin today

Germany sold €3.9billion of six-month bills with an average yield or interest rate of -0.0122 per cent at an auction this morning, a development dubbed 'extraordinary' by market expert Louise Cooper of BGC Partners.

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'Investors are willing to get slightly less money back in six months than they pay now, just for the perceived safety of Germany,' she said.

Norway was also regarded as a safe haven, selling 11-year bonds at an 'extraordinarily cheap' average yield of 1.39 per cent today, said Ms Cooper. But the troubled Hungarian government, which has already been bailed out by the IMF once, had to pay 7.77 per cent on six-week bills at its latest auction.

Regarding Germany's 'negative yield' bond auction, Karl Schamotta of Western Union Business Solutions said: 'In effect, buyers in the financial system are paying the government to keep their money safe.

'To our knowledge, this is the first time that this has happened at auction, and it certainly underlines the scale of the liquidity contraction that Europe is experiencing.

'When financial institutions are literally happier to lose money than to invest it in the real economy, growth is very likely to fall.'

In a further reflection of the foreboding felt in the financial world, banks are still parking huge sums with the European Central Bank for an interest rate of 0.25 per cent instead of lending it out.

The figure deposited on Friday night was nearly €464billion. It is expected to increase further in the run-up to January 17, although there will be technical reasons for movements up to that date which are not necessarily an indication of more fear, according to Ms Cooper.

The UK has opted out of the EU treaty being pushed by eurozone leaders, but Prime Minister David Cameron warned today that they need to take some 'pretty decisive steps' if the single currency is to survive.

The Prime Minister told Sky News that he believed the 'most likely outcome' was that the euro would hold together, despite the current debt crisis.

But he stressed that in the longer term it was essential to address the 'fundamental competitiveness divide' between the powerful German economy and the weaker southern states.

Meanwhile, Mr Cameron has threatened to use the UK's veto a second time if other countries insist on trying to impose an EU-wide financial transaction tax.

Mr Sarkozy signalled today that France may go ahead with a transactions tax on its own, saying he would hold consultations with unions on the issue.

Mrs Merkel said she was personally for such a tax being introduced in the eurozone.

'We don't have an agreement on this within the government, but personally I will campaign for this, and if we do not manage to convince all 27 of this - which would naturally be better - then we think about how to develop this,' she said.

Stock markets are trading flat following the Merkel-Sarkozy meeting today. The FTSE 100 is down 10.7 points at. 5,639, while on the continent Germany's DAX is off 11.6 points at 6,046.3 and France's CAC 40 is up 6.6 points at 3,144.

The euro suffered a heavy sell-off last week amid intensifying fears about the eurozone debt crisis. It is trading at €1.27 against the dollar and €0.82 against the pound (£1.21) today.

The average yield or interest rate on 10-year Italian bonds - widely regarded as a gauge of current fear about the eurozone - is at a still elevated 7.1 per cent today. This is above the threshold beyond which Greece, Portugal and Ireland sought bailouts.